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Chapter 2: Q3ISTQ (page 75)

Question: Companies that use IFRS:

(a) must report all their assets on the statement of financial position (balance sheet) at fair value.

(b) may report property, plant, and equipment and natural resources at fair value.

(c) may refer to a concept statement on estimating fair values when market data are not available.

(d) may only use historical cost as the measurement basis in financial reporting.

Short Answer

Expert verified

Answer

The correct option is(b) may report property, plant and equipment, and natural resources at fair value.

Step by step solution

01

Definition of Conceptual Framework

Conceptual frameworks can be defined as the fundamentals and the principles that must be followed to achieve the targeted objective of the financial reporting.

02

Explanation for correct options

The business entity reporting financial information under IFRS is allowed to report the PPR and natural resources at their fair market value under IFRS 13. IFRS 13 provides all the measurement and disclosure requirements of the PPE and natural resources at fair market value.

03

Explanation for incorrect options

  1. Option (a) is incorrect because all of the assets are not reported on their fair value. Some of the assets, such as receivables and inventory, are reported at their net realizable value.
  2. Option (c) is incorrect because the fair value cannot be estimated when the market data is unavailable.
  3. Option (d) is incorrect because the business entity using IFRS can use fair value as a measurement basis in financial reporting.

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Most popular questions from this chapter

Question: What are some of the costs of providing accounting information? What are some of the benefits of accounting information? Describe the cost-benefit factors that should be considered when new accounting standards are being proposed.

Briefly describe how the organization of the FASB Codification corresponds to the elements of financial statements.

GROUPWORK (Accounting Principles and Assumptions—Comprehensive) Presented below are a number of business transactions that occurred during the current year for Gonzales, Inc.

Instructions

In each of the situations, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles.

(a) The president of Gonzales, Inc. used his expense account to purchase a new Suburban solely for personal use. The following journal entry was made.Miscellaneous Expense 29,000Cash 29,000

(b) Merchandise inventory that cost \(620,000 is reported on the balance sheet at \)690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value.Inventory 70,000Sales Revenue 70,000

(c) The company is being sued for \(500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no liability for damages resulting from the situation. Nevertheless, the company decides to make the following entry.Loss from Lawsuit 500,000Liability for lawsuit 500,000

(d) Because the general level of prices increased during the current year, Gonzales, Inc. determined that there was a \)16,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entryDepreciation Expense 16,000Accumulated Depreciation Equipment 16,000

(e) Gonzales, Inc. has been concerned about whether intangible assets could generate cash in case of liquidation. As a consequence, goodwill arising from a purchase transaction during the current year and recorded at \(800,000 was written off as follows.

(f) Because of a “fire sale.” equipment obviously worth \)200,000 was acquired at a cost of $155,000. The following entry was made.Equipment 2000Cash 155,000Sales Revenue 45,000

Statement of Financial Accounting Concepts No.5 identifies four characteristics that an item must have before it is recognized in the financial statements. What are these four characteristics?

(Assumptions, Principles, and Constraint) Presented below are the assumptions, principles, and constraints used in this chapter.

1. Economic entity assumption 6. Measurement principle (fair value)2. Going concern assumption 7. Expense recognition principle3. Monetary unit assumption 8. Full disclosure principle4. Periodicity assumption 9. Cost constraint5. Measurement principle (historical cost) 10. Revenue recognition principle

Instructions

Identify by number the accounting assumption, principle, or constraint that describes each situation below. Do not use a number more than once

.(a) Allocates expenses to revenues in the proper period.

(b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. (Do not use revenue recognition principle.)

(c) Ensures that all relevant financial information is reported.

(d) Rationale why plant assets are not reported at liquidation value. (Do not use historical cost principle.)

(e) Indicates that personal and business record keeping should be separately maintained.(f) Separates financial information into time periods for reporting purposes.

(g) Assumes that the dollar is the “measuring stick” used to report on financial performance.
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